These Dividends will Keep Growing
Andrés is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
There are different ways to analyze the value of a company: assets, sales, earnings and cash flows are some of the metrics that can be used for that purpose. But one of my favorite ways to evaluate the fundamentals of a business is to pay attention to its dividend payments. Dividends don't only provide income, which can be very valuable in these uncertain times, they also say a lot about the company's quality.
After all, dividends are cash payments, so they are less susceptible to manipulation than other accounting metrics. If a company has been able to consistently distribute growing payments to shareholders through many years, it should have strong fundamentals and the capacity to increase cash flows in different economic environments. Dividends provide transparency as well as an added source of returns.
Many academic studies have brought support to the idea of dividend growth investing, and the following companies have many attractive characteristics besides their long-term dividend track record. Strong competitive positions, abundant financial resources and reasonable valuations are some of the characteristics that make these stocks worth some consideration from long-term investors looking for high-quality companies for their portfolio.
Johnson & Johnson (NYSE: JNJ) is one of the few corporations in the world with AAA credit rating. The company has been increasing its dividends every year for the last 53 years: recessions, wars, political changes, none of them have been able to stop this healthcare giant from growing its dividends. Valuation for this company is really attractive from a historical perspective; Johnson & Jonson trades at a forward P/E ratio of 11.9 and pays a 3.5% dividend yield.
McDonald's (NYSE: MCD) has been able to grow and adapt to changing consumer needs: new products, more healthy food options, different pricing strategies and the boom in coffee consumption are a few examples. International expansion and product innovation still offer growth opportunities for the dominant player in the fast food industry. McDonald's is reasonably valued at a forward P/E of 15.7, its dividend yield is 2.8%.
PepsiCo, Inc. (NYSE: PEP) has a collection of outstanding brands in the food and beverage industry like Pepsi, Tropicana, Gatorade, Lay's, Quaker and Doritos among others. The company has launched different lines of products to better differentiate them in terms of their fat content and other health effects and is expanding its presence in emerging markets through acquisitions. With a forward P/E of 14.1 and a dividend yield of 3.2%, Pepsico is a great buy-and-hold candidate.
If you are looking for a solid dividend trajectory, 3M Company (NYSE: MMM) may be just what you need. The company has increased its dividends in the last 54 years and will probably keep doing it for a long time. This industrial conglomerate is not only the producer of the famous Post It Notes and Scotch Tape, it is heavily involved in many other businesses like personal care, healthcare and high-tech products among others. At a forward P/E of 12.6 3M is quite cheap, it yields a 2.7% in dividends.
Energy stocks with solid dividend payments can be an interesting alternative. They provide income and at the same time they should serve as protection in case of rising inflation or geopolitical conflicts. ConocoPhillips (NYSE: COP) pays a very tempting dividend yield of 3.6% and trades at a forward P/E of 8.4, which leaves ample room for price increases. The company is spinning off its refining operation, which could produce some uncertainties, but it doesn't look like something to worry too much about.
Dividend growth stocks may not be the hottest and most popular companies, but they produce some solid returns over the long term. Better yet, they provide investors with the peace of mind to hold these positions without worrying too much about the future.
Motley Fool newsletter services recommend Johnson & Johnson, McDonald's, 3M Company and PepsiCo. The Motley Fool owns shares of Johnson & Johnson and PepsiCo. acardenal has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.